China sees lowest growth in three years

GDP for third quarter slumps to 7.4 per cent down from 7.6, making it the worst economic performance since 2009.

18 Oct 2012 12:38 GMT

Retail is one bright spot in the Chinese economy which has been affected by declining growth [AFP]

China has suffered its worst economic decline in three years, with third-quarter GDP at 7.4 per cent, slower than the previous quarter's 7.6 per cent.

For the first time since 2009, the world's second-largest economy missed its own target, making it too weak to drive up global growth, as both the United States and Europe continue to flounder, according to government data released on Thursday.

The slump could lead to job losses and social unrest, posing a challenge to the ruling Communist Party as it prepares for a once-a-decade handover of power to younger leaders.

The further quarterly decline had been expected after officials, including Hu Jintao, the president, said that growth might slow further before recovering.

Beijing has cut interest rates twice since early June and is injecting money into the economy through higher investment by state companies and spending on building subways and other public works.

But authorities have avoided a major stimulus after huge spending in response to the 2008 global crisis fuelled inflation and a wasteful building boom.

Declining exports

The slowdown over the past year and a half is due largely to government curbs imposed to cool an overheated economy and reduce reliance on exports by encouraging more domestic consumption.

The slump worsened last year after global demand for Chinese goods plunged unexpectedly.

Compared to the US and Japan, China's expansion is stronger, but the slowdown has been painful for companies that depend on high growth to drive demand for new factories and other goods.

The slowdown has been tough for manufacturers that had relied mostly on exporting their goods. They are now trying to sell more to China's own consumers.

Xie Jun, owner of company that manufactures electronics and phones, said he was losing $15,000-$30,000 a month and had to lay off 30 of his 100 employees.

He began trying to make more sales in China a few years ago "but the market is limited".

Despite the overall decline, some segments of the economy have improved. Retail sales rose 14.4 per cent and investment in factories and other fixed assets improved, rising 20.5 per cent in the first nine months of the year.

'Emerging stabilisation'

A Chinese government spokesman tried to spin the latest number as a sign that the slump has levelled out.

"We can see a clear sign of steady economic growth,'' said Sheng Laiyun, spokesman for the National Bureau of Statistics.

"There is a smaller margin of decline and some major indicators have been growing faster.''

Wen Jiabao, the prime minister and China's senior economic official, said on Wednesday that growth appeared to be stabilising and expressed confidence China could meet its official targets for the year.

Wen gave no growth forecast or a possible timeframe for a recovery.

"Those fearing a hard landing will be able to sleep a little better tonight, but those positioned for a clear recovery mightbe disappointed," Alistair Thornton, senior China economist at IHS Global Insight, told the Reuters news agency.

"The picture is one of emerging stabilisation, not the return of unbridled optimism."